Investor capitalism, sustainable investment and the role of tax relief

This contribution examines the connection between investor capitalism and sustainable investment. It will be observed in this article that investor capitalism has gone through a structural change. Individual investors have been replaced by funds. Financial service providers have emerged that assist investors in managing and holding investments. This development coincided and was arguably facilitated by the growth in workplace and personal pensions. Pensions are subsidised by the government through tax relief. This financial contribution of the government is justified on social policy grounds. But it has the effect that pension savers, who receive substantial return by saving tax, are deprived of a reason to take an interest in how their money is invested. This not only deprives the service providers assisting pension savers from oversight from their ultimate customers. It also can help to explain why pension savers do not actively select investment products but rely on the default settings suggested by their employers. If the government is serious about encouraging investor capitalism to bring about sustainable business it should start with its own financial contribution, which has coincided with the emergence of the current model of investor capitalism, and connect pension tax relief to sustainable investment practices

When harmonization is not enough: shareholder stewardship in the European Union

On 10 June 2019 the transposition and implementation deadline for the shareholder engagement rules imposed upon institutional investors and asset managers by the revised Shareholder Rights Directive (SRD II) expired. This article offers an original account of the rationale, the dynamics and the evolution of this EU-driven policy, which aims to promote long-term institutional shareholder engagement within (or in the absence of) nationally embedded frameworks. We place the SRD II shareholder engagement rules within what we see as a multi-layered regulatory landscape consisting in some Member States of soft-law stewardship codes or similar principles and guidelines, and we find—perhaps surprisingly—that the SRD II stewardship-related provisions were transposed in a literal and minimalistic fashion without any customization to divergent national specifications and despite the fact that the SRD II is only a minimum harmonization directive. We search for explanations for this transposition pattern by pointing to three key issues: the policy and institutional misfit between the harmonized rules and national regimes, the lack of a strong market demand for shareholder stewardship, and the more apt soft, flexible and mostly bottom-up norms (contained in codes or similar principles and guidelines)—rather than (semi-)hard top-down rules—in inculcating good shareholder stewardship practices. Against this background of minimalist intervention (both at the EU and national levels), we find that pre-SRD II soft stewardship initiatives have had two key positive effects. First, they increased market actors’ familiarity and preparedness with the SRD II transposed rules, thereby increasing the likelihood of effective compliance with good shareholder stewardship standards whilst maintaining national idiosyncrasies. Second, soft-law stewardship codes or similar principles and guidelines, despite their own weaknesses, are vital mechanisms of innovative norm-generation and can expand or adjust the SRD II stewardship-related rules to provide tailored shareholder stewardship frameworks and serve as a signalling function for key market actors. From this it follows that the uniform, but minimalistic, transposition of the SRD II stewardship-related rules across the EU, although welcome in shaping the minimum standards, needs to be supported by tailored, soft-law stewardship codes or similar principles and guidelines. Such a symbiosis of the harmonized SRD II shareholder engagement rules and supporting soft-law stewardship developments will allow the tailoring of shareholder stewardship norms to local conditions and the provision of guidance and meaning to the SRD II rules, while a minimum harmonization of shareholder stewardship is already secured